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What is vendor negotiation?
Vendor negotiation describes the process used to discuss and eventually agree on contractual terms with your vendor.
Vendor negotiations provide an opportunity to decide what obligations you’re willing to accept as part of an upcoming transaction, and which you want to push back on.
Usually, these vendor negotiations happen across email, or on the phone. However, many businesses are making their vendor negotiations more efficient by automating important parts of the process so that commercial teams can self-serve on vendor agreements.
You’ll find out everything you need to know about developing an effective vendor negotiation strategy in this guide, with tips and best practices throughout.
Why is effective vendor negotiation important?
Effective vendor negotiation is important because it minimizes risk for your business and ensures that your deals are closed faster, with more favourable terms.
Vendor contracts can create a number of problems for organizations, though. Without guidance on how to approach them, sales, marketing or finance may not have the confidence to get started with negotiation - so often these key documents land on legal’s desk.
This increases the contract lifecycle and delays commercial outcomes. Also, without a consolidated approach to these contracts, inconsistency can creep into the contractual positions agreed with vendors which introduces risk for the organization.
“It’s legal’s responsibility to protect the business from risk, but they have to balance this risk with the commercial interest of the contract”
Fortunately, there are ways to combat this issue and minimize the risks introduced by vendor contracts, while at the same time speeding up the contracting process. Let’s cover some of these tips now.
Vendor contract negotiation tips
1. Focus on what matters
Lawyers, by now, are used to being seen as “overly cautious” and “risk averse”. Many lawyers may admit to being a bit overzealous when it comes to redlining a vendor’s contract.
It’s the legal department’s responsibility to protect the business from risk, but they have to balance this risk appetite with the commercial interest represented by the vendor agreement template.
If that balance strays, lawyers can push back on far more terms than necessary to protect the organization. For example, they may expand their markup to changes that are just personal preference, or that only protect against purely hypothetical scenarios.
Refine the clauses you will push back on to those that will really make a difference to the business. By filtering the things that can result in damage to the business, you can speed up the contracting process and receive contract approvals sooner.
2. Agree minimum standards for contracting
One of the biggest problems with negotiating vendor contracts is that there can be a lot of variation in what is finally agreed upon with vendors. This inconsistency creates contractual risk, but a simple way to address this is to set minimum contracting standards.
This would require your team to consolidate their ideal position on key terms, as well as the minimum standard you can accept, before agreeing a contract. This ensures that the business can always guarantee this minimum standard without too many concerns.
To enable commercial teams to progress deals on their own, it might be easier to provide a number of fallback positions that they can attempt before agreeing to the minimum standard. This guarantees that commercial teams can lead with and push back on the most important clauses with confidence.
3. Document your minimum contracting standards
Once you’ve established what your contract management best practices and negotiation strategies are, you should consolidate them into a theme-centric contract playbook.
This means you can capture your stance on indemnities, warranties, audit rights, and confidentiality terms without them being tied to a specific contract. This playbook can also include escalation guidelines on when to get internal approval, and who to request it from.
However, if you really want to ensure compliance with these standards and retain control over vendor agreements, you can automate these workflows using a contract management tool like Juro.
Juro’s automated contract templates allow you to set conditions and rules within your contract so that specific fallback clauses are automatically added to a contract when certain conditions are met. This is achieved through conditional logic.
Juro users can also set up automated approval workflows for different contract templates. That way, contracts are automatically sent to certain stakeholders for approval when certain conditions are met. Common use cases for this include if contracts have a high contract value, or if they’re using non-standard terms.
You can find out more about these features by hitting the button below to book a personalized demo.
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